A digital currency? MAS is not convinced

Singapore

THERE is no compelling reason for central banks to issue digital currencies, said managing director of the Monetary Authority of Singapore (MAS) Ravi Menon.

Speaking to The Business Times, Mr Menon said that it remains unclear what problem digital currencies would solve, noting that embracing more electronic payments of fiat currencies would instead generate real economic benefits from reducing the cost of cash transactions, and in bringing greater convenience.

But if central banks issue digital currencies, people end up holding a large part of their wealth as a direct liability of the central bank.

"Do we want that? How would the credit transmission mechanism work if most of our savings are in central bank digital currencies," said Mr Menon in an interview.

"Today, we keep a tiny amount of cash with us and the rest of it is placed with the banks. The banks lend that money to finance economic growth. If most of our money were to be held with the central bank, then the credit allocation function falls on central banks. Central banks are not equipped to do that."

This comes as the rise of stablecoins has prompted some questions on whether central banks should launch digital versions of the fiat currency.

Stablecoins refer to cryptocurrencies that are pegged to a basket of fiat currencies, securities, or certain commodities, with the intention of reducing the price volatility of these cryptocurrencies.

Facebook's brand of stablecoins, launched under a group known as the Libra Association, may be pegged to currencies such as the Singapore dollar, the greenback and the euro, the social-media giant had said over the last few months.

Separately, Beatrice Weder di Mauro, president of the Centre for Economic Policy and Research, said at a UBS panel on Thursday that Libra has been one of the catalysts to make central banks think "much more actively" about their own involvement with digital currencies. This contrasts with the attitude of just "regulating it and saying, 'no, we don't like this'."

"Some central banks, like the MAS, have been very open-minded about fintech and providing (regulatory) sandboxes, but not all regulators are." - Additional reporting by Annabeth Leow

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